KING IV

AN OVERVIEW
The King Reports on Governance
for South Africa have for more
than 20 years constituted the
premier corporate governance
codes in this country. They contain
numerous recommendations and
principles with respect to best
corporate governance practice
for enterprises. The reports are
supplemented by practice notes
issued from time to time by the
Institute of Directors in Southern
Africa (IODSA).
INTRODUCTION
The King reports are not legally binding.
However, for entities with a primary listing
on the JSE Limited securities exchange
certain aspects are binding by virtue of the
listings requirements imposing obligations
on issuers to comply therewith. In respect of
those matters in King which the JSE does not
consider mandatory, an issuer is nevertheless
required to describe the extent of its
compliance, and explain any non-compliance,
in its annual report to shareholders.
There have also been cases where the high
court has considered the principles expounded
by King to be binding on state-owned entities
(SABC v Mpofu 2009), and where it has
referred to those principles as a yardstick
against which the conduct of directors should
be measured in the context of their fiduciary
duties (Minister of Water Affairs and Forestry v
Stilfontein Gold Mining Company 2006).
Up until 1 November 2016, the applicable code
was King III. On that date the King IV Report
on Corporate Governance for South Africa,
2016 was launched. The JSE soon thereafter
published proposed amendments to its listings
requirements as an update with a view to
incorporating certain of the provisions of King IV.
From a structural and format perspective,
King IV is significantly different to King III. The
substantive principles however are broadly in
line with its predecessor. Much has been made
of King IV’s switch to an “apply and explain”
philosophy as opposed to King III’s “apply or
explain”. However, in substance essentially the
same position is arrived at, given that King IV has
reduced the 75 governance principles in King III,
to 17 principles (one of which is applicable only
to institutional investors). The 17 principles are
general and high-level in nature, the idea being
that they are capable of application by any entity
regardless of its nature and size. It is the granular
practices which are implemented in applying the
principles which will naturally differ depending
on the entity.
As with King III, King IV applies to all entities, and
accordingly employs the generic term “governing
body” when referring to the primary governance
structure within an entity (in the case of a
company, its board).
There are sector-specific supplements which
apply to state-owned entities, municipalities,
retirement funds, non-profit organisations and
small/medium enterprises. These supplements
set out some of the nuances and modifications to
be borne in mind when applying the governance
code to entities that fall within those categories.
KING IV AN OVERVIEW | cliffedekkerhofmeyr.com
AREAS OF COMPARISON
What follows is a table containing a brief comparison of some of the material and practical aspects
of King III and King IV, as well as a comparison of these from a Companies Act perspective.
KING III
COMPOSITION OF Should comprise a majority of
GOVERNING BODY non-executives, and the majority of
non-executives should be independent.
Diversity of membership must
be considered.
Should be a minimum of two executive
members, namely the CEO and CFO.
Recommends that at least one-third of
non-executive directors rotate at every
annual general meeting.
INDEPENDENCE A list of criteria (e.g. financial interests
OF DIRECTORS in the entity, and present or past
relationships with the entity) are set
out which criteria deem directors to be
independent or non-independent.
CHAIRMAN OF Should be an independent,
GOVERNING BODY non-executive.
The office of chairman and CEO must
not be occupied by the same person.
LEAD Required to be appointed only if chairman
INDEPENDENT is not independent, and fulfils chairman's
DIRECTOR role when the latter is conflicted.
KING IV
Unchanged. Diversity of membership is
further emphasised by the addition that
the governing body should set targets
for race and gender representation in its
membership.
Less prescriptive with regard to rotation.
The board is left to decide on a
rotation policy.
Similar criteria are utilised, however these
are now framed as non-exhaustive factors
to be taken into consideration, and are
therefore not necessarily determinative,
of a director's status as independent
or otherwise.
Unchanged.
Required to be appointed irrespective
of the chairman’s position, and has an
enhanced role under King IV.
COMPANIES ACT, 2008
Little is prescribed in respect of
board composition.
At least 50% of directors (and alternates)
must be elected by shareholders,
and other directors may be directly
appointed by any third party named in
the MOI, or as ex officio directors.
There is no requirement for the rotation
of directors.
There is no general requirement or test
for independence of directors other than
in the context of the audit committee
composition, as well as that of the
"independent board" in the context of
takeover law.
Not regulated or prescribed. At common
law, he is appointed by the board.
Nothing prevents the CEO from being
the chairman as well.
Not regulated or prescribed.
KING IV AN OVERVIEW | cliffedekkerhofmeyr.com
AREAS OF COMPARISON...continued

KING III KING IV COMPANIES ACT, 2008

CHAIRMAN'S Should not be a member of the
INVOLVEMENT IN audit committee.
COMMITTEES
Should not chair the remuneration
committee, but may be a member of it.
Should be a member of the nomination
committee and may also be
its chairman.
Should not chair the risk committee but
may be a member of it.
Position unchanged insofar as audit,
nomination and remuneration
committee is concerned.
May chair the risk committee.
May be a member of the social and
ethics committee but should not chair it.
Not regulated or prescribed.
The board can constitute any number
of committees and has wide powers
of delegation to such committees, but
the chairman’s participation in such
committees is not directly regulated.
However, the audit committee’s
composition is prescribed and therefore
if the chairman does not meet the
relevant criteria he cannot be a member
of that committee.

DELEGATION General principles of delegation are Adds that delegation to a member of
set out. the governing body must be formal and
reduced to writing, setting out the scope
and duration of the delegation.
In terms of s76(4) read with s76(5)
directors are entitled to rely on
delegates to whom they have reasonably
delegated any functions or powers.
The form and manner of delegation is
not prescribed or regulated.

COMMITTEES OF Should comprise a minimum of three Unchanged.
GOVERNING BODY members, and must have formal terms
The minimum content of committees’
– GENERAL of reference.
terms of reference is slightly expanded.
Annual report to disclose the
committees’ respective work and
areas of focus during the relevant
reporting period.
Only the composition of the audit
committee and social and ethics
committee is prescribed.
Only public and state-owned
companies are required to have an
audit committee. Listed companies
are required to have a social and
ethics committee, as well as unlisted
companies that reach 500 on their
public interest score in any two of the
previous five financial years.
Audit committee and social and ethics
committee must report to shareholders
on their respective areas of work.
AREAS OF COMPARISON...continued

KING III KING IV COMPANIES ACT, 2008

AUDIT COMMITTEE Should comprise at least three
MEMBERSHIP members, all of whom must be
independent, non-executive.
Unchanged Member of the audit committee must
not be – involved in the day-to-day
management of the company’s business
or have been so involved at any time
during the previous financial year;
a prescribed officer, or full-time
employee, of the company or another
related or inter-related company, or
have been such an officer or employee
at any time during the previous three
financial years;
a material supplier or customer of
the company, such that a reasonable
and informed third party would
conclude in the circumstances that the
integrity, impartiality or objectivity of
that director is compromised by that
relationship; and
not be related to any person above.

NOMINATIONS Composition not specifically prescribed. All members to be Not prescribed or regulated.
COMMITTEE Practice note (Sept 2009) recommends non-executive; majority
MEMBERSHIP all members to be non-executive; to be independent.
majority to be independent.

RISK GOVERNANCE Should comprise of both executives and Same, but adds that the majority should Not prescribed or regulated.
COMMITTEE non-executives. be non-executives.
MEMBERSHIP

KING IV AN OVERVIEW | cliffedekkerhofmeyr.com

AREAS OF COMPARISON...continued

KING III KING IV COMPANIES ACT, 2008

SOCIAL Not addressed; regulated entirely by Should comprise executives and Must comprise at least three directors
AND ETHICS Companies Regulations. non-executives; majority to be non- or prescribed officers, with at least one
COMMITTEE executives. To be applied together with non-executive director.
MEMBERSHIP Companies Regulations.

CEO General disclosures relating to
- DISCLOSURES remuneration of directors and
prescribed officers apply to the CEO.
Adds that there should be disclosure Only remuneration disclosures are
of the notice period for termination of: required (by virtue of him being a
the CEO’s contract as well as conditions director or prescribed officer).
attaching hereto; other professional
commitments of the CEO; and whether
succession planning is in place for the
CEO position.

COMPANY Should have an arm’s-length Unchanged. Functions and duties are prescribed but
SECRETARY relationship with the governing body, it is not stated that the relationship with
and thus should not be a member of the the board must be at arms-length.
governing body.

REMUNERATION Recommends the remuneration policy Unchanged, but adds that the Remuneration to directors in their capacity
– VOTE BY be submitted for a non-binding advisory remuneration policy must contain the as such must be approved by a special
SHAREHOLDERS vote by shareholders at every AGM measures that the board will take if 25% or resolution within the prior two years. This
OF A COMPANY (ordinary resolution). more of votes exercised are cast against is understood to include only director fees
the policy. The measures taken must be to non-executive directors, not salaries,
disclosed in the next integrated report. bonuses etc. to executive directors.

KING IV AN OVERVIEW | cliffedekkerhofmeyr.com

AREAS OF COMPARISON...continued
KING III KING IV
COMPANY Recommends a governance framework Unchanged. More detail is provided
GROUPS to be in place between holding on the suggested content of the
companies and their subsidiaries. governance framework.
INSTITUTIONAL Not addressed in King III; dealt with Specific principles are set out
INVESTORS in the separate Code for Responsible concerning the overarching
Investing in South Africa (CRISA). obligation of the governing body of
an institutional investor to ensure that
responsible investment is practised
by the organisation to promote good
governance and the creation of value by
the companies in which it invests.
SECTOR Not addressed. Contains sector-specific supplements
SUPPLEMENTS which address the nuanced and
specialised applicability of King IV in
respect of municipalities, non-profit
entities, retirement funds, SMEs and
state-owned entities.
COMPANIES ACT, 2008
Governance framework is not prescribed
or regulated.
Not addressed.
Not addressed other than in terms of the
concept of a “state-owned company”;
however this is simply regulated in the
same way as a public company except
to the extent a ministerial exemption
applies in terms of s9. Non-profit
companies are also a separate category,
but are regulated the same way as profit
companies save for certain exceptions
as set out in s10 (mainly pertaining to
share capital aspects).
KING IV AN OVERVIEW | cliffedekkerhofmeyr.com

CENTRAL TO THIS THEME IS THAT THE
BOARD SHOULD COMPRISE A BALANCE
OF POWER AND SHOULD HAVE AN
APPROPRIATE DEGREE OF INDEPENDENCE.
UP UNTIL NOVEMBER OF THIS YEAR, THE
KING III REPORT SET THE BENCHMARK
AND CRITERIA FOR CATEGORISING A
DIRECTOR AS “INDEPENDENT”.
This position is not unique to the
South African corporate governance
landscape: just as examples, the respective
codes and laws of the US, UK, Australia,
India and Germany also stress independence
and, to lesser or greater extents, set out
a test or list of criteria for measuring the
independence of directors. King IV has made
some interesting changes with regard to the
application and content of the criteria.
A KEY QUESTION UNDER KING IV: IS IT
EASIER OR HARDER TO BE CLASSIFIED AS
AN INDEPENDENT DIRECTOR?
Throughout the series of King Codes on
corporate governance, the composition of
the governing body of the entity (the board of
directors, in the case of a company) has been
a key theme.
In terms of King III, in the first place, an independent director
has to be a non-executive director. In addition to being
non-executive, an independent director is a director who:
• is not a representative of a shareholder who has the ability to
control or significantly influence management or the board;
• does not have a direct or indirect interest in the company
(including any parent or subsidiary in a consolidated group
with the company) which exceeds 5% of the group’s total
number of shares in issue;
• does not have a direct or indirect interest in the company
which is less than 5% of the group’s total number of shares in
issue, but is material to his personal wealth;
• has not been employed by the company or the group of which
it currently forms part in any executive capacity, or appointed
as the designated auditor or partner in the group’s external
audit firm, or senior legal adviser for the preceding three
financial years;
• is not a member of the immediate family of an individual
who is, or has during the preceding three financial years,
been employed by the company or the group in an
executive capacity;
• is not a professional adviser to the company or the group,
other than as a director;
• is free from any business or other relationship (contractual
or statutory) which could be seen by an objective outsider to
interfere materially with the individual’s capacity to act in an
independent manner, such as being a director of a material
customer of or supplier to the company; or
• does not receive remuneration contingent upon the
performance of the company.
KING IV AN OVERVIEW | cliffedekkerhofmeyr.com

IF A DIRECTOR FAILED TO COMPLY WITH
ANY ONE OF THESE CRITERIA, HE WOULD
FOR PURPOSES OF KING III BE REGARDED
AS NON-INDEPENDENT.
King IV moves further away from the notion
of boxing independence into set criteria: the
criteria are now “factors” to be considered in
assessing independence – the overarching
general test is always whether “there is no
interest, position, association or relationship
which, when judged from the perspective
of a reasonable and informed third party,
is likely to influence unduly or cause bias
in decision- making in the best interests
of the organisation.” The factors are not
determinative and neither are they exhaustive.
The factors also differ in some notable
respects from the previous ones, indicating
some interesting concessions and new angles
taken by the drafters of King IV.
The newly stated range of factors to be considered are
whether the director:
• is a significant provider of financial capital, or ongoing
funding to the organisation, or is an officer, employee or a
representative of such provider of financial capital or funding;
• if the organisation is a company, participates in a share-based
incentive scheme offered by the company;
• if the organisation is a company, owns securities in the
company, the value of which is material to the personal wealth
of the director;
• has been in the employ of the organisation as an executive
manager during the preceding three financial years, or is a
related party to such executive manager;
• has been the designated external auditor responsible for
performing the statutory audit for the organisation, or a key
member of the audit team of the external audit firm, during the
preceding three financial years;
• is a significant or ongoing professional adviser to the
organisation, other than as a member of the governing body;
• is a member of the governing body or the executive
management of a significant customer of, or supplier to,
the organisation;
• is a member of the governing body or the executive
management of another organisation which is a related party
to the organisation; or
• is entitled to remuneration contingent on the performance of
the organisation.
KING IV AN OVERVIEW | cliffedekkerhofmeyr.com
The first criterion that was in King III,
namely that the director must not
be a representative of an influential
shareholder, is removed.

One of the new factors is
whether the director is on the
board of a “related” entity.
The first criterion that was in King III,
namely that the director must not be a
representative of an influential shareholder,
is removed. This is an interesting deletion
and an indication that the drafters
have reconsidered the viewpoint that a
representative of a substantial shareholder
is necessarily in any position of “conflict”
that places him apart from any other
investor. In its place now are “significant
providers of capital or funding”. Note
however that one of the new factors is
whether the director is on the board or
executive management of a “related”
entity – “related” is defined as per the
Companies Act, and in the context of
companies it essentially refers to group
companies. Cross-directorship within a
group of companies is now an indication
of possible non-independence. A clear
distinction is thus drawn between, for
instance, representatives of substantial
(but not majority) shareholders on the
one hand and representatives of holding
companies on the other: The latter
represent the de jure controller of the
company, and one more readily perceives
their non-independence.
Participation in a share-based scheme has been
added as a factor. This is perfectly understandable
as participants in such schemes are often awarded
further shares in a manner directly, or at least very
closely, linked to the performance of the company,
whereas other investors are generally not. This
factor can probably be seen as a sub-category
of the last factor which is whether the director
“is entitled to remuneration contingent on the
performance of the organisation.”
Lastly, the criterion of holding 5% or more of the
company’s or group’s share capital is done away
with: the question now is solely whether the
shareholding is material to that director’s wealth. Again
understandable: what is more relevant is the materiality
to the director personally.
What then is the answer to the opening question?
Yes it is easier in the sense that the test now is less
rigid, but no in the sense that not all the questions are
set out for you nicely on a page. The key will be to
apply the listed factors, and others, in a considered,
substance-over-form way and arrive at an honest,
justifiable assessment of a director’s independence.
KING IV AN OVERVIEW | cliffedekkerhofmeyr.com
MARKET RECOGNITION
The way we support and interact with our clients attracts significant external recognition.

Chris Charter is the Practice Head of the Competition Law team. Chambers Global 2018–2023 ranked him in
Band 1 for competition/antitrust. The Legal 500 EMEA 2017–2023 recommended Chris as a leading individual
for competition. The Legal 500 EMEA 2012–2016 recommended him for competition. IFLR1000 2019–2022
recommended him as a highly regarded lawyer. IFLR1000 2011–2018 recommended Chris as a leading lawyer.
Global Competition Review 2020–2021 named Chris a highly recommended lawyer.

Tim Fletcher is the Chairperson and a Director in our Dispute Resolution team. Chambers Global 2022–2023
ranked Tim in Band 2 for dispute resolution. Chambers Global 2019–2021 ranked him in Band 3 for dispute
resolution. The Legal 500 EMEA 2016–2023 recommended him as a leading individual for dispute resolution.

Aadil Patel is the Practice Head of the Employment Law team, and the Joint Sector Head of the Government
& State-Owned Entities sector. Chambers Global 2015–2023 ranked him in Band 2 for employment. The Legal
500 EMEA 2021–2023 recommended Aadil as a leading individual for employment and recommended him from
2012–2020.

Chambers Global 2020–2023 ranked Gillian Lumb in Band 3 for employment. The Legal 500 EMEA 2020–2023
recommended her for employment.

IFLR1000 2018–2022 recommended Yaniv Kleitman as a notable practitioner in M&A.

IFLR1000 2018–2022 recommended Francis Newham as a notable practitioner in capital markets: equity, and M&A.

2023 2022

TOP TIER

KING IV AN OVERVIEW | cliffedekkerhofmeyr.com

OUR TEAM
For more information about our services in South Africa and Kenya, please contact:

Chris Charter Gillian Lumb

Practice Head & Director: Director:
Competition Law Employment Law
T +27 (0)11 562 1053 T +27 (0)21 481 6315
E chris.charter@cdhlegal.com E gillian.lumb@cdhlegal.com

Tim Fletcher Yaniv Kleitman

Chairperson Director:
Director: Dispute Resolution Corporate & Commercial
T +27 (0)11 562 1061 T +27 (0)11 562 1219
E tim.fletcher@cdhlegal.com E yaniv.kleitman@cdhlegal.com

Aadil Patel Francis Newham

Practice Head & Director: Employment Law Executive Consultant:
Joint Sector Head: Corporate & Commercial
Government & State-Owned Entities T +27 (0)21 481 6326
T +27 (0)11 562 1107 E francis.newham@cdhlegal.com
E aadil.patel@cdhlegal.com
BBBEE STATUS: LEVEL ONE CONTRIBUTOR
Our BBBEE verification is one of several components of our transformation strategy and we continue to seek
ways of improving it in a meaningful manner.

PLEASE NOTE
This information is published for general information purposes and is not intended to constitute legal advice.
Specialist legal advice should always be sought in relation to any particular situation. Cliffe Dekker Hofmeyr
will accept no responsibility for any actions taken or not taken on the basis of this publication.

JOHANNESBURG
1 Protea Place, Sandton, Johannesburg, 2196. Private Bag X40, Benmore, 2010, South Africa.
Dx 154 Randburg and Dx 42 Johannesburg.
T +27 (0)11 562 1000 F +27 (0)11 562 1111 E jhb@cdhlegal.com

CAPE TOWN
11 Buitengracht Street, Cape Town, 8001. PO Box 695, Cape Town, 8000, South Africa. Dx 5 Cape Town.
T +27 (0)21 481 6300 F +27 (0)21 481 6388 E ctn@cdhlegal.com

NAIROBI
Merchant Square, 3rd floor, Block D, Riverside Drive, Nairobi, Kenya. P.O. Box 22602-00505, Nairobi, Kenya.
T +254 731 086 649 | +254 204 409 918 | +254 710 560 114
E cdhkenya@cdhlegal.com

STELLENBOSCH
14 Louw Street, Stellenbosch Central, Stellenbosch, 7600.
T +27 (0)21 481 6400 E cdhstellenbosch@cdhlegal.com

©2023 0783/MAY

CLIFFE DEKKER HOFMEYR | cliffedekkerhofmeyr.com